Reject Shop profit slip driven by Covid-19 and the Omicron wave

The Omicron Covid wave had a punishing impact on sales and foot traffic at the budget retailer, which has suffered a fall in profits.

Discount retailer The Reject Shop has posted a 5 per cent fall in annual net profit to $7.9m as sales rose 1.2 per cent to $788.2m, and will use the growing strength of its balance sheet to launch a $10m share buyback.

The chain was particularly hit by lockdowns and self-imposed lockdowns by shoppers when Omicron emerged around Christmas, pushing down sales and earnings especially at its key stores located in CBD’s and large shopping centres which saw a slump in foot traffic.

The retailer, which struggled through Covid-19 lockdowns when the pandemic first emerged in 2019, said December and January sales were unfavourably impacted by the emergence of the Omicron variant in the lead up to Christmas.

It reduced store foot traffic with large parts of the community limiting their movement or self-imposing their own form of lockdowns amid concerns about increasing Covid-19 case numbers.

In addition, sales during the first half of 2022 were impacted — in some instances unfavourably and in others favourably — by government-imposed lockdowns in each of NSW, Victoria, Queensland, Western Australia, South Australia and the Australian Capital Territory.

The Omicron wave kept shoppers away from Reject Shop stores, hurting its full year earnings. Picture: Matthew Vasilescu/AAP

About 45 stores in large shopping centres and CBD locations were most impacted by customer concerns around Covid-19 with comparable store sales down 3.6 per cent.

However, some 188 metro and country stores in neighbourhood and strip locations were more resilient, with comparable store sales down 1.2 per cent.

Costs also mounted for the retailer, with store expenses including operating costs associated with opening and closing stores totalling approximately $3.8m in 2022 compared to $2m in the previous corresponding period, and include the non-cash write-off of assets associated with store closures.

The company opened 22 new stores during the year, including seven in the fourth quarter, representing approximately 6 per cent of the overall portfolio.

The retailer closed 14 mostly underperforming stores during the period and expects to close another 5–10 underperforming stores during 2023.

The retailer, whose major shareholder is packaging mogul Raphael Geminder, said sales have been steadily improving since March as the impact of Covid-19 on customer behaviour appears to be diminishing.

The company generated positive comparable store sales growth during the period between March and June 2022, as foot traffic returned to major shopping centres and CBDs where many key Reject Shop stores are located.

Recently appointed chief executive Phil Bishop said 2022 had been a challenging year for its customers, team and business.

“We endured Covid-19 related lockdowns in almost every state. The emergence of the Omicron variant saw large parts of the community hibernate during the key Christmas trading period and the January summer holidays,” Mr Bishop said.

“Like so many Australian retailers, The Reject Shop has been dealing with unprecedented disruption right across our domestic and international supply chains.”

Mr Bishop said there was “significant opportunity to grow” the retailer by winning the trust of customers through maintaining strong low-price position and continuing to evolve product offering through more deals, newness and variety.

“The discount variety sector has an important role to play in helping Australians navigate this difficult economic time and, as Australia’s largest discount variety retailer, I believe The Reject Shop can have a meaningful impact by offering our customers both branded consumables as well as exciting general merchandise at a low price,” he said.

No final dividend was declared, but its $10m share buyback is expected to start in September.